China's expanding outbound investment has seen the country snatch up property all over the world. The same buying spree has extended to Chinese companies that have spent billion of dollars acquiring valuable foreign assets. Zhong Shi joins me now in the studio with a look at some first-quarter trends.
Q1. I understand that China has been very aggressive in its overseas acquisitions in the first three months of this year. What do the numbers tell us?
A1. You’re right. China’s overseas acquisitions are setting new records. Statistics from Bloomberg show that by the end of March, overseas acquisitions by Chinese companies, that have been announced, amounted to 113 billion US dollars. That’s just off the 121 billion dollars achieved in the whole of 2015. Here are some of the notable cases. In February, China National Chemical Corporation, which is state-owned, offered to buy Swiss pesticide and seed giant Syngenta for 43 billion dollars, making it the largest overseas acquisition by a Chinese company. Home appliance powerhouse Haier paid almost five-and-a-half billion dollars for General Electric’s appliance business. Chinese aviation and shipping conglomerate, HNA Group bought electronics distributor Ingram Micro for about six billion dollars. China’s Anbang Insurance was involved in a bidding war with Marriott to buy Starwood Hotels & Resorts. Anbang ended up exiting the race but its last-ditch, elevated offer made international headlines. Analysts say the trend is neither whimsical or temporary, and predict that China’s overseas acquisition could grow as much as 50% annually over the next few years.
Q2. Impressive numbers no doubt which naturally brings up the question: Why the sudden injection of pace? And given the staggering acquisition costs, how profitable are these deals?
A2. Well, there's a number of reasons for the current momentum. For starters, the fluctuating and erratic RMB has led Chinese companies to believe that overseas assets are more stable. Then there's the urgency for industrial upgrades. It has made more advanced technology and foreign brands all the more attractive to Chinese firms, who are looking to move up the global value chain. But the huge loans taken by Chinese companies to complete these deals leaves one wondering, how they will find a return on their ambitious investments? China Chemical reportedly applied for more than 40 billion dollars in loans before it acquired Syngenta. The fact that China Chemical is state-owned made the loan possible, but it by no means guarantees a profitable return. Experts say China’s current shopping spree for foreign assets is reminiscent of Japan’s sweep over property assets in the United States in the 1980s, with Mitsubishi’s purchase of the Rockefeller Center, the landmark deal. Japanese companies made "too-big-to-turn-down offers", but couldn't get back into profit and it's a story which may give these Chinese companies many sleepless nights.
